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Why Texas Employers Must Define Independent Contractor vs. Employee

Posted on Dec 19, 2012

When two people are doing the same job, there may not be any recognizable signs that one person is an employee and the other is an independent contractor. However, to employers, there are many differences between employees and independent contractors.

One of the biggest reasons for employers to hire independent contractors is to save money in benefits, insurance costs, taxes, and more. In Texas, the determining factor for whether a person is an independent contractor or an employee is the right to control. According to the IRS, evidence of the degree of control and independence are categorized in three ways, including:

Behavioral. Does the company control what the worker does and how he or she does the job?

Financial. Are there aspects of a worker’s job that is controlled by the payer? Who provides the tools, and are expenses reimbursed?

Type of Relationship. Are there written contracts or benefits, such as vacation, insurance, pension etc.?

Why Employers Should Clarify if Workers Are Employees or Independent Contractors

Recently, the Fifth Circuit Court of Appeals ruled on an insurance issue regarding a construction worker who died on the job. The construction worker’s family filed a wrongful death suit against the construction company for which their loved one worked. The Court reviewed five factors in determining the role of the construction worker:

He provided his own tools.

He did not have social security or federal income taxes withheld.

He was issued a 1099.

He was not provided with workers’ compensation coverage.

He had discretion over the details of how his work was completed.

Based on those five points, the Court ruled that the construction worker was an independent contractor and not an employee.

If you need employment law services in Texas, call the Posey Law Firm today.